What does the Coinbase Premium Gap tell us about investor activity?

GB Market Commentary 19/07/2022

by Marcus Sotiriou

Bitcoin remains around $22,000 as it hovers around a critical region. In order for the rally to continue, bulls want to see price hold above $21,500 which is in confluence with the 20-day moving average. Since Bitcoin’s plummet from $45,000, this moving average has had 6 retests and 6 rejections, so the $21,500 is a must hold price level. If price fails to successfully retest and flop the daily trend after a 60% drop in 4 months, this would be a telling sign of weakness in the digital asset trading market.

There are some signs that we could have continuation to the upside, as the Coinbase Premium Gap has surged to positive values over the past week. The Coinbase Premium Gap is an indicator that measures the difference between the Bitcoin price on digital asset trading platform, Coinbase and the price on Binance.

This indicator has been negative for several months during the market downtrend, showing that the Bitcoin value on Coinbase has been less than Binance. However, data from Crypto Quant shows that recently the Coinbase Premium Gap has spiked significantly. This could be a sign that U.S. investors are buying Bitcoin more than the rest of the world, as Coinbase is mainly used by U.S. investors.

This could also infer that institutions are becoming more aggressive buyers, as Coinbase has a bigger institutional percentage of users compared to digital asset trading platform, Binance - institutional buy pressure is always a positive sign for bulls.

The fact that this indicator has risen whilst terrible news is no longer negatively impacting the market therefore could be a sign that we may see further upside over the coming weeks.